Media discounts irk German regulators

Fines exceeding 215m Euro were recently imposed on German TV stations for offering media buying agencies significant rebates if they committed significant ad spend to their networks. But doesn’t this happen every day in the UK and if so, does a similar fate await the UK industry? Anna Woodward reports.

Topic: Competition

Who: The Bundeskartellamt (the German competition authority)

When: November 2007

Where: Germany

Law stated as at: 11 December 2007

What happened:

The Bundeskartellamt found that the advertising marketing companies of RTL and Pro7Sat.1, which are the two major German private broadcast groups with a combined market share of more than 80% of the German market for television advertising, had abused their dominant position by entering into anti-competitive discount agreements for television advertising with advertising agencies.

The agreements were deemed to be anti-competitive for two reasons. Firstly, advertising agencies were granted discounts and rebates if they agreed to place large proportions of their advertising budgets with the broadcast group. This foreclosed the television advertising market to smaller broadcasters, which were not in a position to offer the same rebates. Secondly, the agreements contain retroactive quantity discounts, which have a negative effect on competition.

On 30 November 2007, the Bundeskartellamt imposed fines totalling €216 million on the two companies, the highest ever penalty imposed in Germany for an abuse of market power. Both companies have accepted the fines and will introduce new discount systems in their agreements.

Why this matters:

This case indicates that the German competition authority is prepared to rule that agreements which are common practice in the television advertising industry breach competition law. This should act as a wake up call for the UK television advertising sales industry, as there is a risk that the UK competition authorities may make similar findings. Moreover, the German decision may also encourage private actions by aggrieved small broadcasters which believe that they have been foreclosed from the market.

In light of the decision, companies involved in the sale of television advertising should review their agreements to ensure that they do not breach competition law.

In November 2003, in relation to the merger of Granada and Carlton, contract rights renewal undertakings were agreed with these companies in order to allow buyers of advertising airtime from ITV to continue with their pre-merger contracts. The Competition Commission's report on the merger suggested that a full review of the UK television advertising sales market should be conducted. However, Ofcom decided in December 2005 that it was not necessary to conduct such a review. Nevertheless, in January 2008, the OFT and Ofcom will commence a review of ITV's contract rights renewal undertakings. Details of the extent of the review will be published on its commencement, so it remains to be seen whether the review of the undertakings will take the German decision into account. However, given that ITV's share of the UK television advertising sales market is over 40%, the German decision may prove to be a relevant consideration.